Expert: Weakness in rupee to continue

MUMBAI: The weakness in rupee against the US dollar seen over the past few weeks is expected to continue, as a host of both global as well as domestic factors are likely to put pressure on the currency.

Noting that the recent weakness in the rupee reflects its increased sensitivity to global volatility amid rising domestic vulnerabilities, analyst at Kotak Securities said the normalisation of monetary policy by G4 economies along with geo political tension could impact global flows into emerging market including India. “This along with a heavy election cycle amid deteriorating domestic macro scenario could be double whammy for the rupee. We expect rupee to move in the range 65-67.50 in FY19 (averaging 66.44) but don’t rule out it overshooting the historical highs of 68.89 if both domestic and global risks play out,” said Kotak Securities.  

Declining for the sixth consecutive session, rupee slipped below the Rs 66 level mark against the US dollar on Friday. The currency finally closed at 66.11, its lowest level in last 13 months after the minutes of the latest meeting of the monetary policy committee signalled towards a sooner than expected increase in interest rate.

Despite the broad based weakness in US dollar, analyst at Kotak Securities said rupee remained under stress since February 2018 led by both adverse global and domestic factors such as persistent increase in commodity prices, geopolitics and trade war-led risk-offs, concerns on the banking sector amid uncertainty surrounding NPA resolution and frauds, and political uncertainty as India nears a heavy state election calendar culminating in the 2019 polls.

“Weighed down by this double blow, Indian rupee has been the worst Asian currency, having weakened by around 3.5 per cent from the highs witnessed in early 2018,” it added. According to it, various unknowns such as trade wars translating to currency wars and faster G4 policy normalisation could add significant volatility in forex space.